Lower Gas Prices Slowed Everyday Spending in July

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index The EPI fell 0.4 percent in July after rising 0.8 percent in June. The unadjusted CPI was down 0.2 percent in July.
Table 1. EPI expenditure categories and July 2016 weights

AIER’s Everyday Price Index fell 0.4 percent in July from June, driven by the first drop in energy prices in five months. The EPI measures changes in prices that people see in their everyday purchases, such as groceries, gasoline, utilities, and personal-care services. Over the past 12 months, the EPI has fallen 1.7 percent.

The EPI including apparel, a broader measure, fell 0.5 percent in July 1.5 percent over the past 12 months. Both EPI measures exclude prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices that are contractually fixed for prolonged periods (like housing).

The more widely known price gauge, the seasonally adjusted Consumer Price Index reported by the U.S. Bureau of Labor Statistics, was unchanged in July. Prior to seasonal adjustment the CPI fell 0.2 percent for the month and 1 percent over the past 12 months. The EPI is not seasonally adjusted, so we compare it with the unadjusted CPI.

Motor fuel prices fell 5.5 percent in July, more than offsetting a 0.7 percent increase in other energy prices, such as household fuels and utilities. Crude oil has plummeted to around $40 a barrel from $50 just two months ago and over $100 a barrel in 2014. The collapse in crude oil prices is in part due to increased domestic production, which peaked at 1.9 million barrels a day in 2015 and is still 1.7 million barrels a day, 42 percent above 2012 levels. Even as the supply has grown, demand for gasoline has fallen off. According to the U.S. Department of Transportation, vehicle miles-driven were down 0.2 percent between April and May, their third consecutive monthly decline.

Prices for the main health-care component of the EPI, prescription drugs, have risen 4.4 percent over the past 12 months, faster than their five-year average increase of 3.3 percent. Real consumer spending on prescription drugs slowed to just 0.8 percent in June from 3 percent annual growth in January. Meanwhile, non-prescription drug prices have fallen 1.6 percent over the past year.

The slowdown in prescription drug spending is part of a wider slowdown in health-care spending, which fell to 4.1 percent in June from a record high of 6.6 percent annual growth at the beginning of 2015. Real consumer spending on physician services and hospital services reached all-time highs in 2015 before dropping to 5.7 percent (physicians) and 3.4 percent (hospitals) in June. 

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index The EPI fell 0.4 percent in July after rising 0.8 percent in June. The unadjusted CPI was down 0.2 percent in July.
Table 1. EPI expenditure categories and July 2016 weights